S&P 500 sector weighting and some other thoughts

In my wanderings on the internet I ran across the Stand and Poors website. I learned some interesting and unrelated stuff.

There is a www2 now as well as a www online. "Therewith" is also a word...I thought "therefore", "thereof" and "thereto" was about it. Does that mean that "therewithout" is also a word?...perhaps that is "not withstanding"?

Anyway. I also realized why the financials can make or break the market so easily.

Sector weighting as of Sept 30, 2007.
19.82% - Financials
16.18% - Infotech
11.68% - Energy
11.64% - Healthcare
11.51% - Industrials
9.52% - Consumer Staples
9.23% - Consumer Discretionary
3.75% - Telecom services
3.44% - Utilities
3.23% - Materials

The top 10 stock holdings make up 20% of the index as well. That leaves 80% to be divided up amoungst the rest of the 490 companies. Also, the top ten do not have a representative top ten company for each sector...Info Tech, Energy and Financials each have two...Utilities, Consumer Discretionary and Materials are not represented. Explains a lot.

Financials were lower by the end of 2007 to 17.64% and I didn't go looking right now for up to date numbers.

Just buying the SPY still leaves you open to market crunches even if individual sectors do not do as badly. It's fine to say that it has performed reasonable over the long term but what about having to get out after a severe rundown? Sometimes market timing is forced by circumstances not by choice. I wonder if there were no overall attempt at indexing would the market "crunch" have been as bad as it was? This index, and many other similar ones, seem to give the media something to be able spin.

The rest of this is not new, just sort of starting as if I hadn't looked at this stuff already...a fresh perspective looking for the edge that I know is there while preparing to setup my next trading plan with some better rules. Timeframes seem to have me locked in trying to predetermine trends. The BPI charts are locking me into a particular mindset and I am just breaking my latest thinking pattern of performance based on looking for sector gains.

Running a quick comparative performance chart over a rolling 1 year period results in ALWAYS one sector outperforming the 500, sometimes by a large margin of 50-60%, usually for longish periods of time, usually multiple sectors and in a few cases by all but perhaps one sector.

I studied sector rotation in the past but prediction was not as good as just riding an existing wave. Active management seemed to be the key but using a no-brainer approach to ETF selection and re-balancing amoung only the top two or three sectors is best for diversity, not necessarily performance.

The things that I do not study are the various existing methods of trying to take advantage of any of these trends as I prefer to play with this stuff myself...part of the fun and part of the fully understanding of how best to take advantage of the information that is available out there. Pre-boxed plans may work but when they don't there is a vacuum of knowledge. Not a good plan in my books. Besides, I have tried a number and they just didn't really cut it.

Due to my plan of using spreads and preferring to use both put and call spreads I think that looking for the median performers is actually my best plan. Market volatility can bump option premiums but using a not so volatile sector can benefit from the resulting quick erosion of price over the last short term to expiry given the inflated premiums overall.

Jeff.